A-MARK PRECIOUS METALS, INC. CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K ("Form 10-K") contains statements that are
considered forward-looking statements. Forward-looking statements give the
Company's current expectations and forecasts of future events. All statements
other than statements of current or historical fact contained in this Annual
Report, including statements regarding the Company's future financial position,
business strategy, budgets, projected costs and plans, and objectives of
management for future operations, are forward-looking statements. The words
"anticipate," "believe," "continue," "estimate," "expect," "intend," "may,"
"plan," and similar expressions, as they relate to the Company, are intended to
identify forward-looking statements. These statements are based on the Company's
current plans, and the Company's actual future activities and results of
operations may be materially different from those set forth in the
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from the statements made. Any or all of the forward-looking statements in this
Annual Report may turn out to be inaccurate. The Company has based these
forward-looking statements largely on its current expectations and projections
about future events and financial trends that it believes may affect its
financial condition, results of operations, business strategy, and financial
needs. The forward-looking statements can be affected by inaccurate assumptions
or by known or unknown risks, uncertainties and assumptions. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events occurring after the date hereof. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
contained in this Form 10-K.
In addition to the risks and uncertainties that may ordinarily influence our
business, the Company remains exposed to the effects of the COVID-19 pandemic.
The pandemic has caused significant disruption in the financial markets both
globally and in the United States . The resulting macroeconomic events have
contributed to an increase in the business conducted by the Company, but also
pose certain risks and uncertainties for the Company. The Company does not know
how long the COVID-19 pandemic will continue, the extent to which the effects
that the Company has experienced from the pandemic thus far will persist, or
whether other effects on the Company and its businesses will materialize in the
short or long term.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes contained elsewhere in this Form 10-K. This discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to
these differences include those factors discussed below and elsewhere in this
Annual Report, particularly in " Risk Factors ."
INTRODUCTION
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and related notes to aid in the understanding of our results of operations and financial condition. Our discussion is organized as follows:
•
Executive overview . This section provides a general description of our business, as well as significant transactions and events that we believe are important in understanding the results of operations.
•
Results of operations . This section provides an analysis of our results of operations presented in the accompanying consolidated statements of income by comparing the results for the respective periods presented. Included in our analysis is a discussion of seven performance metrics: o
(i) ounces of gold and silver sold,
o
(ii) Wholesale Sales ticket volume,
o
(iii) Direct-to-Consumer ticket volume:
•
(a) Direct-to-Consumer ticket volume from new customer,
•
(b) Direct-to-Consumer ticket volume from pre-existing customers,
•
(c) Direct-to-Consumer total ticket volume,
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o
(iv) Direct-to-Consumer average order value,
o
(v) number of Direct-to-Consumer customers,
o
(vi) inventory turnover ratio, and
o
(vii) number of secured loans at period-end.
•
Segment results of operations . This section provides an analysis of our results of operations presented for our three segments:
o
Wholesale Sales & Ancillary Services
o Direct-to-Consumer , and o Secured Lending
for the comparable periods.
•
Non-GAAP Measures . This section provides an analysis of our non-GAAP measures with a reconciliation to the most directly comparableU.S. Generally Accepted Accounting Principles ("U.S. GAAP") measure reported on the consolidated financial statements. The Company uses the following two non-GAAP measures: o
"adjusted net income before provision for income taxes", and
o
"'earnings before interest, taxes, depreciation, and amortization", or "EBITDA".
•
Liquidity and financial condition . This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt as ofJune 30, 2022 , sources of liquidity and the amount of financial capacity available to fund our future commitments and other financing arrangements.
•
Critical accounting policies . This section discusses critical accounting policies that are considered both important to our financial condition and results of operations and require management to make significant judgment and estimates. All of our significant accounting policies, including the critical accounting policies, are also summarized in Note 2 to the Company's consolidated financial statements.
•
Recent accounting pronouncements . This section discusses new accounting pronouncements, dates of implementation and their expected impact on our accompanying consolidated financial statements.
EXECUTIVE OVERVIEW
Our Business
We conduct our operations in three reportable segments: (i) Wholesale Sales & Ancillary Services, (ii) Direct-to-Consumer and (iii) Secured Lending.
Wholesale Sales & Ancillary Services Segment
The Company operates its Wholesale Sales & Ancillary Services segment directly
and through its wholly-owned subsidiaries, A-Mark Trading AG ("AMTAG"),
Transcontinental Depository Services, LLC ("TDS" or "Storage"), A-M Global
Logistics, LLC ("AMGL" or "Logistics"), and AM&ST Associates, LLC ("AMST" or the
"SilverTowne Mint").
The Wholesale Sales & Ancillary Services segment operates as a full-service
precious metals company. We offer gold, silver, platinum, and palladium in the
form of bars, plates, powder, wafers, grain, ingots, and coins. Our Industrial
unit services manufacturers and fabricators of products utilizing or
incorporating precious metals. Our Coin and Bar unit deals in over 1,800 coin
and bar products in a variety of weights, shapes, and sizes for distribution to
dealers and other qualified purchasers. We have a marketing support office in
Vienna, Austria , and a trading center in El Segundo, California . The trading
center, for buying and selling precious metals, is available to receive orders
24 hours every day, even when many major world commodity markets are closed. In
addition to Wholesale Sales activity, A-Mark offers its customers a variety of
ancillary services, including financing, storage, consignment, logistics, and
various customized financial programs. As a U.S. Mint-authorized purchaser of
gold, silver, platinum, and palladium coins, A-Mark purchases product directly
from the U.S. Mint and other sovereign mints for sale to its customers.
Through its wholly-owned subsidiary AMTAG, the Company promotes A-Mark's products and services to the international market. Through our wholly-owned subsidiary TDS, we offer a variety of managed storage options for precious metals products to financial institutions, dealers, investors, and collectors around the world.
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The Company's wholly-owned subsidiary AMGL is based in Las Vegas, Nevada , and
provides our customers an array of complementary services, including receiving,
handling, inventorying, processing, packing, and shipping of precious metals and
custom coins on a secure basis.
Through its wholly-owned subsidiary AMST, the Company designs and produces
minted silver products. Our SilverTowne Mint operations allow us to provide
greater product selection to our customers and greater pricing stability within
the supply chain, as well as to gain increased access to silver during volatile
market environments, which have historically created higher demand for precious
metals products.
Direct-to-Consumer
The Company operates its Direct-to-Consumer segment through its wholly-owned
subsidiaries JM Bullion, Inc. ("JMB") and Goldline, Inc. ("Goldline"). JMB has
five wholly-owned subsidiaries: Gold Price Group, Inc. ("GPG"), Silver.com, Inc.
("Silver.com"), Goldline Metal Buying Corp. ("GMBC"), Provident Metals Corp.
("PMC"), and Cybermetals Corp. ("CyberMetals"). Goldline, Inc. owns 100% of
AMIP, LLC ("AMIP"), and has a 50% ownership interest in Precious Metals
Purchasing Partners, LLC ("PMPP".) As the context requires, references in this
Form 10-K to "JMB" may include GPG, Silver.com, GMBC, PMC, and CyberMetals, and
references to "Goldline" may include AMIP and PMPP.
JMB is a leading e-commerce retailer providing access to a broad array of gold,
silver, copper, platinum, and palladium products through its websites and
marketplaces. JMB operates six separately branded, company-owned websites
targeting specific niches within the precious metals retail market, including
JMBullion.com, ProvidentMetals.com, Silver.com, Cybermetals.com, GoldPrice.org,
and SilverPrice.org.
The Company acquired the 79.5% interest in JMB that it did not previously own in
March 2021 . With this acquisition, we substantially expanded our e-commerce
channel for precious metals product sales and increased the diversification of
our business between wholesale and retail distribution.
In April 2022 , JMB commercially launched the CyberMetals online platform, where
customers can purchase and sell fractional shares of digital gold, silver,
platinum, and palladium bars in a range of denominations. CyberMetals' customers
have the option to convert their digital holdings to fabricated precious metals
products via an integrated redemption flow with JMB. These products may be
designated for storage by the Company or shipped directly to the customer.
The Company acquired Goldline in August 2017 through an asset purchase
transaction with Goldline, LLC , which had been in operation since 1960. Goldline
is a direct retailer of precious metals to the investor community, and markets
its precious metal products on television, radio, and the internet, as well as
through customer service outreach. AMIP manages Goldline's intellectual
property.
PMPP was formed in in fiscal 2019 pursuant to terms of a joint venture agreement, for the purpose of purchasing precious metals from the partners' retail customers, and then reselling the acquired products back to affiliates of the partners. PMPP commenced operations in fiscal 2020.
Secured Lending
The Company operates its Secured Lending segment through its wholly-owned
subsidiary Collateral Finance Corporation, LLC ("CFC"). CFC has two wholly-owned
subsidiaries: AM Capital Funding, LLC ("AMCF"), and CFC Alternative Investments
("CAI").
CFC is a California licensed finance lender that originates and acquires
commercial loans secured by bullion and numismatic coins. CFC's customers
include coin and precious metal dealers, investors, and collectors. As of June
30, 2022 , CFC and AMCF had, in the aggregate, approximately $126.2 million in
secured loans outstanding, of which approximately 64.7% were acquired from third
parties (some of which may be customers of A-Mark) and approximately 35.3% were
originated by CFC.
AMCF was formed for the purpose of securitizing eligible secured loans of CFC.
AMCF issued, administers, and owns Secured Senior Term Notes: Series 2018-1,
Class A, with an aggregate principal amount of $72.0 million and Secured
Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal
amount of $28.0 million (collectively referred to as the "Notes"). The Class A
Notes bear interest at a rate of 4.98%, and the Class B Notes bear interest at a
rate of 5.98%. The Notes have a maturity date of December 15, 2023 . (See Note
5 to the Company's consolidated financial statements for additional
information.)
CAI is a holding company that has an equity method interest in Collectible Card
Partners, LLC ("CCP"). CCP provides capital to fund commercial loans secured by
graded sport cards and sports memorabilia. CCP commenced operations in fiscal
2022.
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--------------------------------------------------------------------------------Our Strategy
The Company was formed in 1965 and has grown into a significant participant in the bullion and coin markets, with approximately$8.2 billion in revenues for fiscal year 2022. Our strategy continues to focus on growth, including the volume of our business, our geographic presence, and the scope of complementary products, services, and technological tools that we offer to our customers.
We intend to continue to grow by leveraging off the strengths of our existing integrated operations:
•
our expertise in e-commerce and marketing;
•
our retail distribution network;
•
the depth of our customer relationships;
•
our access to market makers, suppliers, and sovereign and private mints;
•
our trading systems in the
•
our network of precious metals dealers;
•
our depository relationships around the world;
•
our knowledge of secured lending;
•
our design and production of minted silver products;
•
our ability to obtain more favorable pricing and financing terms due to our size;
•
our distribution, storage and logistics capabilities; and
•
the quality and experience of our management team.
Our Customers
Our customers include financial institutions, bullion retailers, industrial manufacturers and fabricators, sovereign mints, refiners, coin and metal dealers, investors, collectors, and e-commerce and other retail customers. The Company makes a two-way market in its wholesale operations, which results in many customers also operating as our suppliers in that segment. This diverse base of wholesale customers purchases a variety of products from the Company in a multitude of grades, primarily in the form of coins and bars. Our Direct-to-Consumer segment sells to (and, through JMB and PMPP, buys from) retail customers, with JMB focusing on e-commerce operations and Goldline marketing through various traditional channels to the investor community. The Direct-to-Consumer segment offers these customers a variety of gold, silver, copper, platinum, and palladium products.
Factors Affecting Revenues, Gross Profit, Interest Income, and Interest Expense
Set forth below are the key factors affecting the Company's revenues, gross profit, interest income, and interest expense. These factors can result from both the Company's ongoing business activities as well as from Company acquisitions. For the years endedJune 30, 2022 and 2021, the Company's results were significantly impacted by the acquisition of JMB inMarch 2021 .
Revenues. The Company enters into transactions to sell and deliver gold, silver, platinum and palladium to industrial and commercial users, coin and bullion dealers, mints, and financial institutions. The metals are investment or industrial grade and are sold in a variety of shapes and sizes.
The Company also sells and delivers gold, silver, platinum, palladium, and copper products directly to customers and the investor community through its Direct-to Consumer segment. Customers may place orders online at one of the Company's websites or over the phone.
The Company also sells precious metals on forward contracts at a fixed price
based on current prevailing precious metal spot prices with a certain delivery
date in the future (up to six months from inception date of the forward
contract). The Company also uses other derivative products (primarily futures
contracts) or combinations thereof to hedge commodity risks. We enter into these
forward and future contracts as part of our hedging strategy to mitigate our
price risk of holding inventory; they are not entered into for speculative
purposes.
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Forward sales contracts by their nature are required to be included in revenues,
unlike futures contracts which do not impact the Company's revenue. The decision
to use a forward contract versus another derivative type of product (e.g., a
futures contract) for hedging purposes is based on the economics of the
transaction. Since the volume of hedging can be significant, the movement in and
out of forwards can substantially impact revenues, either positively or
negatively, from period to period. For this reason, the Company believes ounces
sold (excluding ounces sold on forward sales contracts) is a meaningful metric
to assess our top line performance.
In addition, the Company earns revenue by providing storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors, and collectors worldwide and by providing storage and order-fulfillment services to our retail customers. The Company also earns revenue from advertisements placed on our Direct-to-Consumer websites. These revenue streams represent less than 1% of the Company's consolidated revenues.
The Company operates in a high volume/low margin industry. Revenues are impacted
by three primary factors: product volume, market prices, and market volatility.
A material changes in any one or more of these factors may result in a
significant change in the Company's revenues. A significant increase or decrease
in revenues can occur simply based on changes in the underlying commodity prices
and may not be reflective of an increase or decrease in the volume of products
sold.
Gross Profit. Gross profit is the difference between our revenues and the cost
of our products sold. Since we quote prices based on the current commodity
market prices for precious metals, we enter into a combination of forward and
futures contracts to effect a hedge position equal to the underlying precious
metal commodity value, which substantially represents inventory subject to price
risk. We enter into these derivative transactions solely for the purpose of
hedging our inventory, and not for speculative purposes. Our gross profit
includes the gains and losses resulting from these derivative instruments.
However, the gains and losses on the derivative instruments are substantially
offset by the gains and losses on the corresponding changes in the market value
of our precious metals inventory. As a result, our results of operations
generally are not materially impacted by changes in commodity prices.
Volatility also affects our gross profit. Greater volatility typically causes
the premium spreads to widen resulting in an increase in the gross profit.
Product supply constraints during extended periods of higher volatility have
historically resulted in a heightening of wider premium spreads resulting in
further improvement in the gross profit.
Interest Income. The Company enters into secured loans and secured financing
structures with its customers under which it charges interest. CFC acquires loan
portfolios and originates loans that are secured by precious metal bullion and
numismatic material owned by the borrowers and held by the Company for the term
of the loan. Additionally, AMCF acquires certain loans from CFC that are secured
by precious metal bullion to meet the collateral requirements of the Notes.
Also, the Company offers a number of secured financing options to its customers
to finance their precious metals purchases including consignments and other
structured inventory finance products whereby the Company earns a fee based on
the underlying value of the precious metal ("repurchase arrangements with
customers").
Interest Expense. The Company incurs interest expense associated with its lines
of credit, Notes, product financing agreements for the transfer and subsequent
re-acquisition of gold, silver, and platinum at a fixed price with a third-party
finance company ("product financing arrangements"), and short-term precious
metal borrowing arrangements with our suppliers ("liabilities on borrowed
metals").
Performance Metrics
In addition to financial statement indicators, management also utilizes key operational metrics to assess the performance of our business.
Gold and Silver Ounces Sold and Delivered to Customers. We look at the number of ounces of gold and silver sold and delivered to our customers (excluding ounces recorded on forward contracts). These metrics reflect our business volume without regard to changes in commodity pricing, which also impacts revenue, but can mask actual business trends. The primary purpose of entering into forward sales transactions is to hedge commodity price risk. Although the revenues realized from these forward sales transactions are often significant, they generally have negligible impact on gross margins. As a result, the Company excludes the ounces recorded on forward contracts from its performance metrics, as the Company does not enter into forward sales transactions for speculative purposes. Wholesale Sales Ticket Volume. Another measure of our business that is unaffected by changes in commodity pricing is ticket volume (or number of orders processed). Ticket volume for the Wholesale Sales & Ancillary Services segment measures the total number of wholesale orders processed during the period. In periods of higher volatility, there is generally increased trading in the commodity markets, causing increased demand for our products, resulting in higher business volume. During periods of heightened demand order size per ticket may increase. Direct-to-Consumer Customers. We are focused on attracting new customers and retaining existing customers to drive revenue growth. We use the following three metrics as revenue growth indicators when assessing our customer base:
•
New Direct-to-Consumer Customers means the number of customers that have registered or setup a new account or made a purchase for the first time during the period.
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Active Direct-to-Consumer Customers means the number of customers that have made a purchase during the period.
•
Total Direct-to-Consumer Customers means the aggregate number of customers that have registered or set up an account or have made a purchase in the past.
Direct-to-Consumer Ticket Volume. Ticket volume for the Direct-to-Consumer segment measures the number of third-party product orders processed during the period. In periods of higher volatility, there is generally increased consumer demand for our products, resulting in higher business volume. We use the following three metrics indicators when assessing our ticket volume:
•
Ticket Volume from new Direct-to-Consumer Customers means the number of third-party product orders from new customers (refer to the definition of new customers above) processed by JMB, Goldline, and PMPP during the period.
•
Ticket Volume from Pre-existing Direct-to-Consumer Customers means the number of third-party product orders from pre-existing customers, processed by JMB, Goldline, and PMPP during the period.
•
Total Ticket Volume from Direct-to-Consumer Customers means the aggregate number of third-party product orders processed by JMB, Goldline, and PMPP during the period.
Direct-to-Consumer Average Order Value. Average order value for the Direct-to-Consumer segment measures the average dollar value of third-party product orders (excluding accumulation program orders) delivered to the customer during the period.
Inventory Turnover. Inventory turnover is another performance measure on which we are focused and is calculated as the cost of sales divided by the average inventory during the relevant period. Inventory turnover is a measure of how quickly inventory has moved during the period. A higher inventory turnover ratio, which we typically experience during periods of higher volatility when trading is more robust, typically reflects a more efficient use of our capital.
The period of time that inventory is held by the Company varies depending upon the nature of our inventory commitments with customers and suppliers. (See
Note 6 to the Company's consolidated financial statements for a description of our classifications of inventory by type.) When management analyzes inventory turnover on a period over period basis, consideration is given to each inventory type and its corresponding impact on the inventory turnover calculation. For example:
•
The Company enters into various structured borrowing arrangements that commit the Company's inventory (such as product financing arrangements or liabilities on borrowed metals) for an unspecified period of time. While the Company is able to obtain access to this inventory on demand, this type of inventory tends not to turn over as quickly as other types of inventory.
•
The Company enters into repurchase arrangements with customers under which
A-Mark holds precious metals which are subject to repurchase for an unspecified
period of time. While the Company has legal title to this inventory, the Company
is required to hold this inventory (or like-kind inventory) for the customer
until the arrangement is terminated or the material is repurchased by the
customer. As a result, this type of inventory tends not to turn over as quickly
as other types of inventory.
Additionally, our inventory turnover ratio can be affected by hedging activity,
as the period over period change of the inventory turnover ratio may be
significantly impacted by a period over period change in hedging volume. For
example, if trading activity were to remain constant over two periods, but there
were significantly higher forward sales in the current period compared to a
prior period, the calculated inventory turnover ratio would increase
notwithstanding the constancy of the trading volume.
Number of Secured Loans. Finally, as a measure of the size of our Secured
Lending segment, we look at the number of outstanding secured loans to customers
that are primarily collateralized by precious metals at the end of each quarter.
Typically, the number of loans increases during periods of increasing precious
metal pricing and decreases during periods of declining precious metal prices.
The Company calculates a loan-to-value ("LTV") ratio for each loan as the
principal amount of the loan divided by the liquidation value of the collateral,
which is based on daily spot market prices of precious metal bullion. When the
market price of the pledged collateral decreases and thereby increases the LTV
ratio of a loan above a prescribed maximum ratio, usually 85%, the Company has
the option to make a margin call on the loan. As a result, a decline of precious
metal market prices may cause a decrease in the number of loans outstanding in a
period.
Non-GAAP Financial Measures
In addition to key operational metrics that are used to assess the performance
of our business, management also uses non-GAAP financial performance and
liquidity measures. We believe "adjusted net income before provision for income
taxes" and "EBITDA", can provide useful information to evaluate our financial
performance and liquidity position. Non-GAAP measures do not have standardized
definitions and should not be a substitute for measures that are prepared in
accordance with U.S. GAAP. For a reconciliation of these non-GAAP measures to
the most directly comparable U.S. GAAP measure reported in our consolidated
statements of income and consolidated statements of cash flows for the years
ended June 30, 2022 and 2021, and certain limitations inherent in such measures,
refer to the "Non-GAAP Measures" section below.
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Our fiscal year end is
Recent Developments
Recent events impacting our business are as follows:
•
COVID-19
The COVID-19 pandemic has caused significant disruption in the financial markets both globally and inthe United States . The resulting macroeconomic events contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. It is challenging to predict how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term. Macroeconomic events have positively affected the Company's trading revenues and gross profit as the volatility of the price of precious metals and numismatics resulted in a material increase in the spread between bid and ask prices on these products. We also experienced substantially increased demand for products in each of our coin and bar, industrial and retail businesses. We attribute this to certain customers seeking to assure a supply of precious metals necessary for the operation of their businesses, and other customers, particularly in Goldline and our recently acquired JMB retail units, seeking the safety of investments in precious metals. In response to the heightened demand, in certain cases prices for the products we sell have also risen. We are uncertain of the duration of these conditions.
•
OnAugust 27, 2021 , the Company increased its ownership ofPinehurst Coin Exchange, Inc. ("Pinehurst") from 10.0% to 49.0% for a purchase price of$9.8 million , consisting of$6.8 million in cash and 123,180 shares of the Company's common stock. A-Mark acquired its initial ownership interest of 10.0% in Pinehurst in 2019. Founded in 2005, Pinehurst services the wholesale and retail marketplace and is one of the nation's largest e-commerce retailers of modern and numismatic certified coins on eBay. The Company has appointed two representatives on Pinehurst's board of directors.
•
New Credit Facility
During the second quarter of fiscal 2022, the Company closed a new three-year, committed$350 million credit facility provided by a syndicate of financial institutions, replacing its existing$280 million credit facility. The new credit facility became effective onDecember 21, 2021 and matures onDecember 20, 2024 .
•
Launch of the CyberMetals Online Platform
During the third quarter of fiscal 2022, JMB beta tested the CyberMetals online platform, where customers can purchase and sell fractional shares of digital gold, silver, platinum, and palladium bars in a range of denominations. CyberMetals' customers have the option to convert their digital holdings to fabricated precious metals products via an integrated redemption flow with JMB. These products may be designated for storage by the Company or shipped directly to the customer. The CyberMetals platform was commercially launched inApril 2022 .
•
Stock Split in the Form of a Dividend
OnApril 28, 2022 , the Company's board of directors declared a two-for-one split of A-Mark's common stock in the form of a stock dividend. Each stockholder of record at the close of business onMay 23, 2022 received a dividend of one additional share of common stock for every share held on the record date that was distributed after the close of trading onJune 6, 2022 .
•
OnJune 27, 2022 , the Company executed an agreement to increase its ownership interest inSilver Gold Bull, Inc. ("Silver Gold Bull") from 7.4% to 47.4% for a purchase price of approximately$42.7 million , consisting of$34.0 million in cash and 253,928 shares of the Company's common stock. A-Mark acquired its initial 2.5% ownership interest in Silver Gold Bull in 2014, increasing its investment to 7.4% in 2018. Founded in 2009, Silver Gold Bull is a leading e-commerce precious metals retailer inCanada . The Company has appointed two representatives on Silver Gold Bull's board of directors. Under the terms of the agreement, A-Mark extended its existing exclusive supplier agreement with Silver Gold Bull for an additional four years, toDecember 2026 . The Company also has the option, exercisable between months 18 and 27 following the closing, to purchase an additional 27.6% of the outstanding equity of Silver Gold Bull to bring its ownership interest to 75.0%. 33 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Overview of Results of Operations for the Years Ended
Consolidated Results of Operations
The operating results of our business for the years ended
in thousands, except for share, per share,
and performance metrics data
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 8,159,254 100.000 % $ 7,613,015 100.000 % $ 546,239 7.2 %
Gross profit 261,765 3.208 % 210,198 2.761 % $ 51,567 24.5 %
Selling, general, and
administrative expenses (76,618 ) (0.939 %) (48,020 ) (0.631 %) $ 28,598 59.6 %
Depreciation and
amortization expense (27,300 ) (0.335 %) (10,789 ) (0.142 %) $ 16,511 153.0 %
Interest income 21,800 0.267 % 18,474 0.243 % $ 3,326 18.0 %
Interest expense (21,992 ) (0.270 %) (19,865 ) (0.261 %) $ 2,127 10.7 %
Earnings from equity
method investments 6,907 0.085 % 15,547 0.204 % $ (8,640 ) (55.6 %)
Other income, net 1,953 0.024 % 1,079 0.014 % $ 874 81.0 %
Remeasurement gain on
pre-existing equity
interest - - 26,306 0.346 % $ (26,306 ) (100.0 %)
Unrealized losses on
foreign exchange (98 ) (0.001 %) (129 ) (0.002 %) $ (31 ) (24.0 %)
Net income before
provision for income
taxes 166,417 2.040 % 192,801 2.533 % $ (26,384 ) (13.7 %)
Income tax expense (33,338 ) (0.409 %) (31,877 ) (0.419 %) $ 1,461 4.6 %
Net income 133,079 1.631 % 160,924 2.114 % $ (27,845 ) (17.3 %)
Net income attributable
to noncontrolling
interests 543 0.007 % 1,287 0.017 % $ (744 ) (57.8 %)
Net income attributable
to the Company $ 132,536 1.624 % $ 159,637 2.097 % $ (27,101 ) (17.0 %)
Basic and diluted net income per share
attributable to A-Mark Precious Metals,
Inc. :
Per Share Data:
Basic $ 5.81 $ 9.57 $ (3.76 ) (39.3 %)
Diluted $ 5.45 $ 8.90 $ (3.45 ) (38.8 %)
Performance Metrics:(1)
Gold ounces sold(2) 2,668,000 2,743,000 (75,000 ) (2.7 %)
Silver ounces sold(3) 132,209,000 114,275,000 17,934,000 15.7 %
Inventory turnover
ratio(4) 13.2 19.0 (5.8 ) (30.5 %)
Number of secured loans
at period end(5) 2,271 1,881 390 20.7 %
(1)
See "Results of Segments" for a description of additional metrics not listed
above.
(2)
Gold ounces sold represents the ounces of gold product sold and delivered to the
customer during the period, excluding ounces of gold recorded on forward
contracts.
(3)
Silver ounces sold represents the ounces of silver product sold and delivered to
the customer during the period, excluding ounces of silver recorded on forward
contracts.
(4)
Inventory turnover ratio is the cost of sales divided by average inventory for
the period presented above. This calculation excludes precious metals held under
financing arrangements, which are not classified as inventory on the
consolidated balance sheets.
(5)
Number of outstanding secured loans to customers that are primarily
collateralized by precious metals at the end of the period.
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--------------------------------------------------------------------------------Revenues
in thousands, except performance metrics
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 8,159,254 100.000 % $ 7,613,015 100.000 % $ 546,239 7.2 %
Performance Metrics
Gold ounces sold 2,668,000 2,743,000 (75,000 ) (2.7 %)
Silver ounces sold 132,209,000 114,275,000 17,934,000 15.7 %
Revenues for the year ended June 30, 2022 increased $546.2 million , or 7.2% to
$8.159 billion from $7.613 billion in 2021. Excluding an increase of $664.5
million of forward sales, our revenues decreased $118.3 million or 1.7%, which
was due to a decrease in gold ounces sold and lower average selling prices of
silver, partially offset by an increase in silver ounces sold and higher average
selling prices of gold.
Gold ounces sold for the year ended June 30, 2022 decreased 75,000 ounces, or
2.7%, to 2,668,000 ounces from 2,743,000 ounces in 2021. Silver ounces sold for
the year ended June 30, 2022 increased 17,934,000 ounces, or 15.7%, to
132,209,000 ounces from 114,275,000 ounces in 2021. On average, the selling
prices for gold increased by 2.3% and selling prices for silver decreased by
4.9% during the year ended June 30, 2022 as compared to the prior year.
JMB's revenue represented 23.8% of the Company's consolidated revenue for the
year ended June 30, 2022 . JMB's gold and silver ounces sold represented 20.9%
and 19.4%, respectively, of the Company's consolidated total gold and silver
ounces sold for the year ended June 30, 2022 . As JMB was acquired in March 2021 ,
its revenue represented 8.8% of the Company's consolidated revenue for the year
ended June 30, 2021 . JMB's gold and silver ounces sold represented 7.1% and
7.8%, respectively, of the Company's consolidated total gold and silver ounces
sold for the year ended June 30, 2021 .
Gross Profit
in thousands, except performance
metric
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Gross profit $ 261,765 3.208 % $ 210,198 2.761 % $ 51,567 24.5 %
Performance Metric
Inventory turnover
ratio 13.2 19.0 (5.8 ) (30.5 %)
Gross profit for the year ended June 30, 2022 increased $51.6 million , or 24.5%,
to $261.8 million from $210.2 million in 2021. The overall gross profit increase
was due to higher gross profits earned from the Direct-to-Consumer segment,
offset by lower gross profit earned from the Wholesale Sales & Ancillary
Services Segment.
The Company's overall gross margin percentage for the year ended June 30, 2022
increased by 44.7 basis points to 3.208% from 2.761% in 2021. Excluding an
increase of $664.5 million of forward sales that had a negligible impact to the
amount of gross profit, our gross margin percentage for the year ended June 30,
2022 increased by 79.9 basis points to 3.793% from 2.995%, which was partially
offset by lower trading profits.
The increase in gross margin percentage was mainly attributable to JMB's retail
market activity, which represented 46.0% and 22.0%, respectively, of the
Company's consolidated gross profit for the years ended
Our inventory turnover rate for the year endedJune 30, 2022 decreased by 30.5%, to 13.2 from 19.0 in 2021. The decrease in our inventory turnover ratio was primarily due to higher average inventory balances partially offset by higher forward sales.
Selling, General and Administrative Expense
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Selling, general, and
administrative
expenses $ (76,618 ) (0.939 %) $ (48,020 ) (0.631 %) $ 28,598 59.6 %
Selling, general and administrative expenses for the year ended June 30, 2022
increased $28.6 million , or 59.6%, to $76.6 million from $48.0 million in 2021.
The change was primarily due to: (i) an increase of $21.6 million of expenses
incurred by JMB, (ii) increased
35
--------------------------------------------------------------------------------
compensation expense (including performance-based accruals) of $3.7 million ,
(iii) higher insurance costs of $2.6 million , and (iv) increased consulting and
professional fees of $1.5 million , partially offset by (v) lower
computer-related expense of $0.6 million .
JMB's selling, general, and administrative expenses represented 35.6% and 11.9%,
respectively, of the Company's consolidated selling, general, and administrative
expenses for the year ended years ended June 30, 2022 and 2021.
Depreciation and Amortization Expense
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Depreciation and
amortization expense $ (27,300 ) (0.335 %) $ (10,789 ) (0.142 %) $ 16,511 153.0 %
Depreciation and amortization expense for the year ended June 30, 2022 increased
$16.5 million , or 153.0%, to $27.3 million from $10.8 million in 2021. The
change was primarily due to $16.4 million of JMB's intangible asset amortization
expense.
JMB's depreciation and amortization expense represented 93.0% and 81.3%,
respectively, of the Company's consolidated depreciation and amortization
expense for the years ended
Interest Income
in thousands, except
performance metric
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Interest income $ 21,800 0.267 % $ 18,474 0.243 % $ 3,326 18.0 %
Performance Metric
Number of secured
loans at period-end 2,271 1,881 390 20.7 %
Interest income for the year ended
The interest income from our Secured Lending segment increased by$2.9 million or by 36.0% compared with the prior year. The increase in interest income earned from the segment's secured loan portfolio was primarily due to higher average monthly loan balances during the current year as compared to the average monthly loan balances for the prior year. The number of secured loans outstanding increased by 20.7% to 2,271 as ofJune 30, 2022 , from 1,881 as ofJune 30, 2021 .
The interest income from our other finance product income increased by
Interest Expense
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $
revenue (decrease) (decrease)
Interest expense
10.7 %
Interest expense for the year ended June 30, 2022 increased $2.1 million , or
10.7% to $22.0 million from $19.9 million in 2021. The increase in interest
expense was primarily driven by each of the following components: (i) $1.3
million associated with our Trading Credit Facility and the Notes (including
amortization of debt issuance costs), (ii) $1.2 million related to product
financing arrangements, (iii) $0.5 million of loan servicing fees, offset by a
decrease of (iv) $0.9 million in interest associated with liabilities on
borrowed metals.
Earnings from equity method investments
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Earnings from equity
method investments $ 6,907 0.085 % $ 15,547 0.204 % $ (8,640 ) (55.6 %)
36-------------------------------------------------------------------------------- Earnings from equity method investments for the year endedJune 30, 2022 decreased$8.6 million or 55.6% to$6.9 million from$15.5 million in 2021. The net decrease of$8.6 million includes a$11.7 million decrease related to JMB, a former equity method investment which is now reported by the Company as a wholly owned subsidiary, offset by increased earnings of$3.1 million from our other equity method investments. Other income, net in thousands Years Ended June 30, 2022 2021 $ % % of % of Increase/ Increase/ $ revenue $ revenue (decrease) (decrease) Other income, net$ 1,953 0.024 %$ 1,079 0.014 %$ 874 81.0 % Other income, net for the year endedJune 30, 2022 increased$0.9 million , or 81.0% to$2.0 million from$1.1 million in 2021. The increase was primarily due to higher royalties earned by our Secured Lending segment of$1.1 million , offset by unrealized losses from crypto currency investments of$0.2 million .
Remeasurement gain on pre-existing equity interest
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Remeasurement gain
on pre-existing
equity interest $ - - % $ 26,306 0.346 % $ (26,306 ) (100.0 %)
The remeasurement gain on pre-existing equity interest recognized during the
Company's prior year fiscal year was in connection with the acquisition of JMB.
The Company's fair value of its 20.5% pre-existing equity interest in JMB was
determined to be approximately $33.9 million at the acquisition date. Based on
the total consideration paid of $207.4 million , the remeasurement resulted in
the recognition of a pretax gain of $26.3 million .
Income tax expense
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $
revenue (decrease) (decrease)
Income tax expense
4.6 %
Our income tax expense was $33.3 million and $31.9 million for the years ended
June 30, 2022 and 2021, respectively. Our effective tax rate was approximately
20.0% and 16.5% for the years ended June 30, 2022 and 2021, respectively. For
the year ended June 30, 2022 , our effective tax rate differs from the federal
statutory rate primarily due to the excess tax benefit from share-based
compensation, foreign derived intangible income special deduction, partially
offset by state taxes (net of federal tax benefit). For the year ended June 30,
2021 , our effective tax rate differs from the federal statutory rate primarily
due to adjustments related to our acquisition of JMB, foreign derived intangible
income special deduction, partially offset by state taxes (net of federal tax
benefit).
37--------------------------------------------------------------------------------
SEGMENT RESULTS OF OPERATIONS
The Company conducts its operations in three reportable segments: (i) Wholesale
Sales & Ancillary Services, (ii) Direct-to-Consumer, and (iii) Secured Lending.
Each of these reportable segments represents an aggregation of operating
segments that meets the aggregation criteria set forth in the Segment Reporting
Topic 280 of the Accounting Standards Codification ("ASC 280").
Results of Operations - Wholesale Sales & Ancillary Services Segment
The Company operates its Wholesale Sales & Ancillary Services segment directly and through its wholly-owned subsidiaries,A-Mark Trading AG ("AMTAG"), Transcontinental Depository Services ("TDS"),A-M Global Logistics, LLC ("Logistics"), andAM&ST Associates, LLC ("AMST" or "SilverTowne" or the "Mint"). Also, the Wholesale Sales & Ancillary Services segment includes the consolidating eliminations of inter-segment transactions and unallocated segment adjustments.
Overview of Results of Operations for the Years Ended
- Wholesale Sales & Ancillary Services Segment
The operating results of our Wholesale Sales & Ancillary Services segment for
the years ended
in thousands, except performance metrics
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 6,024,742 (a) 100.000 % $ 6,738,707 (c) 100.000 % $ (713,965 ) (10.6 %)
Gross profit 114,093 1.894 % (b) 138,813 2.060 % (d) $ (24,720 ) (17.8 %)
Selling, general, and
administrative expenses (40,844 ) (0.678 %) (32,992 ) (0.490 %) $ 7,852 23.8 %
Depreciation and
amortization expense (891 ) (0.015 %) (877 ) (0.013 %) $ 14 1.6 %
Interest income 10,706 0.178 % 10,315 0.153 % $ 391 3.8 %
Interest expense (10,034 ) (0.167 %) (11,666 ) (0.173 %) $ (1,632 ) (14.0 %)
Earnings from equity method
investments 6,903 0.115 % 15,547 0.231 % $ (8,644 ) (55.6 %)
Remeasurement gain on
pre-existing equity
interest - - 26,306 0.390 % $ (26,306 ) (100.0 %)
Unrealized losses on
foreign exchange (98 ) (0.002 %) (129 ) (0.002 %) $ (31 ) (24.0 %)
Net income before provision
for income taxes $ 79,835 1.325 % $ 145,317 2.156 % $ (65,482 ) (45.1 %)
Performance Metrics:
Gold ounces sold(1) 2,059,000 2,486,000 (427,000 ) (17.2 %)
Silver ounces sold(2) 104,598,000 103,812,000 786,000 0.8 %
Wholesale Sales ticket
volume(3) 107,594 143,439 (35,845 ) (25.0 %)
(a)
Revenues are presented net of inter-segment transactions with the
Direct-to-Consumer segment that totaled $1.623 billion . This segment's gross
sales before eliminations of inter-segment activity totaled $7.648 billion .
(b)
Gross profit percentage before elimination of inter-segment sales to the
Direct-to-Consumer segment was 1.482% for the period.
(c)
Revenues are presented net of inter-segment transactions with the
Direct-to-Consumer segment that totaled $781.4 million . This segment's gross
sales before eliminations of inter-segment activity totaled $7.520 billion .
(d)
Gross profit percentage before elimination of inter-segment sales to the
Direct-to-Consumer segment was 1.909% for the period.
(1)
Gold ounces sold represents the ounces of gold product sold and delivered to the
customer during the period, excluding ounces of gold recorded on forward
contracts.
(2)
Silver ounces sold represents the ounces of silver product sold and delivered to
the customer during the period, excluding ounces of silver recorded on forward
contracts.
(3)
Wholesales Sales ticket volume represents the total number of product orders
processed.
38--------------------------------------------------------------------------------
Revenues - Wholesale Sales & Ancillary Services
in thousands, except performance metrics
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 6,024,742 (a) 100.000 % $ 6,738,707 (c) 100.000 % $ (713,965 ) (10.6 %)
Performance Metrics
Gold ounces sold 2,059,000 2,486,000 (427,000 ) (17.2 %)
Silver ounces sold 104,598,000 103,812,000 786,000 0.8 %
Wholesale Sales ticket volume 107,594 143,439 (35,845 ) (25.0 %)
(a)
Revenues are presented net of inter-segment transactions with the
Direct-to-Consumer segment that totaled $1.623 billion . This segment's gross
sales before eliminations of inter-segment activity totaled $7.648 billion .
(c)
Revenues are presented net of inter-segment transactions with the
Direct-to-Consumer segment that totaled $781.4 million . This segment's gross
sales before eliminations of inter-segment activity totaled $7.520 billion .
Revenues for the year ended June 30, 2022 decreased $714.0 million , or 10.6%, to
$6.025 billion from $6.739 billion in 2021. Excluding an increase in forward
sales of $664.5 million , our revenues decreased $1.379 billion , which was due to
a decrease in gold ounces sold and lower average selling prices of gold and
silver, partially offset by an increase in silver ounces sold.
Gold ounces sold for the year ended June 30, 2022 decreased 427,000 ounces, or
17.2%, to 2,059,000 ounces from 2,486,000 ounces in 2021. Silver ounces sold for
the year ended June 30, 2022 increased 786,000 ounces, or 0.8%, to 104,598,000
ounces from 103,812,000 ounces in 2021. On average, the selling prices for gold
and silver decreased by 0.7% and 5.7%, respectively, during the year ended June
30, 2022 as compared to the prior year.
For the year ended June 30, 2022 , the Wholesale Sales & Ancillary Services
segment's revenue and product volumes sold exclude transactions with JMB, since
they were eliminated as inter-segment transactions. For the year ended June 30,
2021 , Wholesale Sales & Ancillary Services segment's revenue and product volumes
sold include JMB's transactions through the acquisition date (i.e., in March
2021 ). Since the acquisition date, JMB's results are included in the
Direct-to-Consumer segment. The Wholesale Sales & Ancillary Services segment's
gross sales before elimination of inter-segment activity for the year ended June
30, 2022 increased $127.8 million , or 1.7%, to $7.648 billion from $7.520
billion in 2021, which was due to an increase in silver ounces sold, partially
offset by a decrease in gold ounces sold, and by lower average selling prices of
gold and silver.
Gold ounces sold before eliminations of inter-segment activity for the year
ended June 30, 2022 decreased 145,000 ounces, or 5.4%, to 2,546,000 ounces from
2,691,000 ounces in 2021. Silver ounces sold before eliminations of
inter-segment activity for the year ended June 30, 2022 increased 17,453,000
ounces, or 15.5%, to 129,745,000 ounces from 112,292,000 ounces in 2021.
The Wholesale Sales ticket volume for the year ended June 30, 2022 decreased by
35,845 tickets, or 25.0% to 107,594 tickets from 143,439 tickets in 2021. The
decrease in the ticket volume reflects the exclusion of transactions with JMB in
the current year due to inter-segment eliminations, which were included in the
prior year through the acquisition date of JMB.
Gross Profit - Wholesale Sales & Ancillary Services
in thousands, except performance metric
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Gross profit $ 114,093 1.894 % (b) $138,813 2.060 % (d)$ (24,720 ) (17.8 %) (b)
Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.482% for the period. (d) Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.909% for the period.
Gross profit for the year endedJune 30, 2022 decreased$24.7 million , or 17.8%, to$114.1 million from$138.8 million in 2021. The overall gross profit decrease was primarily due to narrower premium spreads, lower trading profit, and the elimination of inter-segment transactions with JMB, as discussed in the preceding Revenues section. This segment's profit margin percentage decreased by 16.6 basis points to 1.894% from 2.060% in 2021. Excluding an increase of$664.5 million of forward sales that had a negligible impact to the amount of gross profit, this segment's gross margin percentage for the year endedJune 30, 2022 increased by 13.5 basis points to 2.394% from 2.259%. The decrease in gross margin percentage was mainly attributable to narrower premium spreads, lower trading profits, and the impact of increased forward sales. Forward sales increase revenues, but are associated with negligible gross profit. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes. 39 -------------------------------------------------------------------------------- Selling, General and Administrative Expenses - Wholesale Sales & Ancillary Services in thousands Years Ended June 30, 2022 2021 $ % % of % of Increase/ Increase/ $ revenue $ revenue (decrease) (decrease)
Selling, general, and administrative expenses$ (40,844 ) (0.678 %)$ (32,992 ) (0.490 %)$ 7,852 23.8 % Selling, general and administrative expenses for the year endedJune 30, 2022 increased$7.9 million , or 23.8%, to$40.8 million from$33.0 million in 2021. The change was primarily due to: (i) increased compensation expense (including performance-based accruals) of$4.0 million , (ii) higher insurance costs of$2.6 million , and (iii) increased consulting and professional fees of$0.5 million , and (iv) higher computer-related expense of$0.2 million .
Interest Income - Wholesale Sales & Ancillary Services
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)Interest income$ 10,706 0.178 %$ 10,315 0.153 %$ 391 3.8 %
Interest income for the year ended
Interest Expense - Wholesale Sales & Ancillary Services
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Interest expense $ (10,034 ) (0.167 %) $ (11,666 ) (0.173 %) $ (1,632 ) (14.0 %)
Interest expense for the year ended June 30, 2022 decreased $1.6 million , or
14.0% to $10.0 million from $11.7 million in 2021. The overall decrease was
primarily driven by inter-segment eliminations related to JMB's product
financing activity with A-Mark of $2.1 million , lower interest expense related
to liabilities on borrowed metals of $0.9 million , and an increase of $0.1
million in connection with our Trading Credit Facility and the Notes, offset by
higher interest and fees from product financing arrangements of $1.2 million .
Earnings from equity method investments- Wholesale Sales & Ancillary Services
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Earnings from equity
method investments $ 6,903 0.115 % $ 15,547 0.231 % $ (8,644 ) (55.6 %)
Earnings from equity method investments for the year ended June 30, 2022
decreased $8.6 million , or 55.6% to $6.9 million from $15.5 million in 2021. The
net decrease of $8.6 million includes an $11.7 million decrease related to JMB,
a former equity method investment which is now reported by the Company as a
wholly owned subsidiary, offset by increased earnings of $3.1 million from our
other equity method investments.
Remeasurement gain on pre-existing equity interest- Wholesale Sales & Ancillary
Services
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Remeasurement gain
on pre-existing
equity interest $ - (- %) $ 26,306 0.390 % $ (26,306 ) (100.0 %)
40-------------------------------------------------------------------------------- The remeasurement gain on pre-existing equity interest recognized during the Company's prior year was in connection with the acquisition of JMB. The Company's fair value of its 20.5% pre-existing equity interest in JMB was determined to be approximately$33.9 million at the acquisition date. Based on the total consideration paid of$207.4 million , the remeasurement resulted in the recognition of a pretax gain of$26.3 million .
Results of Operations - Direct-to-Consumer Segment
The Company operates its Direct-to-Consumer segment through our wholly-owned subsidiaries:JM Bullion, Inc. ("JMB"),Goldline, Inc. ("Goldline"), and through our 50%-owned subsidiaryPrecious Metals Purchasing Partners, LLC ("PMPP"). As a result of the completion of our acquisition of JMB inMarch 2021 , JMB's financial activity, including performance data, is included in the Direct-to-Consumer segment's fiscal year annual results beginning from that date in fiscal 2021.
Overview of Results of Operations for the Years Ended
- Direct-to-Consumer Segment
The operating results of our Direct-to-Consumer ("DTC") segment for the years
ended
in thousands, except performance metrics
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 2,134,512 (a) 100.000 % $ 874,308 (c) 100.000 % $ 1,260,204 144.1 %
Gross profit 147,672 6.918 % (b) 71,385 8.165 % (d) $ 76,287 106.9 %
Selling, general and
administrative expenses (34,152 ) (1.600 %) (12,830 ) (1.467 %) $ 21,322 166.2 %
Depreciation and
amortization expense (26,057 ) (1.221 %) (9,561 ) (1.094 %) $ 16,496 172.5 %
Interest expense (2,958 ) (0.139 %) (898 ) (0.103 %) $ 2,060 229.4 %
Other expense, net (229 ) (0.011 %) - (- %) $ 229 -
Net income before
provision for income taxes $ 84,276 3.948 % 48,096 5.501 % $ 36,180 75.2 %
Performance Metrics:
Gold ounces sold(1) 609,000 257,000 352,000 137.0 %
Silver ounces sold(2) 27,611,000 10,463,000 17,148,000 163.9 %
Number of new customers(3) 230,400 84,300 146,100 173.3 %
Number of active
customers(4) 623,700 167,700 456,000 271.9 %
Number of total
customers(5) 2,013,000 1,782,600 230,400 12.9 %
DTC ticket volume from new
customers(6) 178,086 84,300 93,786 111.3 %
DTC ticket volume from
pre-existing customers(7) 680,544 247,364 433,180 175.1 %
DTC total ticket volume(8) 858,630 331,664 526,966 158.9 %
DTC average order value(9) $ 2,520 $ 2,773 $ (253 ) (9.1 %)
(a)
Includes $2.4 million of inter-segment sales from the Direct-to-Consumer segment
to the Wholesale Sales & Ancillary Services segment.
(b)
Gross profit percentage, excluding inter-segment sales from the
Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment,
is 6.911% for the period.
(c)
Includes $8.5 million of inter-segment sales from the Direct-to-Consumer segment
to the Wholesale Sales & Ancillary Services segment.
(d)
Gross profit percentage, excluding inter-segment company sales from the
Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment,
is 8.226% for the period.
(1)
Gold ounces sold represents the ounces of gold product sold and delivered during
the period.
(2)
Silver ounces sold represents the ounces of silver product sold and delivered
during the period.
(3)
Number of new customers represents the number of customers that have registered
or setup a new account or made a purchase for the first time during the period.
(4)
Number of active customers represents the number of customers that have made a
purchase during the period.
(5)
Number of total customers represents the aggregate number of customers that have
registered or set up an account or have made a purchase in the past.
(6)
Ticket volume from new customers represents the number of third-party product
orders from new customers processed by JMB, Goldline, and PMPP during the
period.
(7)
Ticket volume from pre-existing customers represents the total number of
third-party product orders from pre-existing customers processed by JMB,
Goldline, and PMPP during the period.
(8)
Total ticket volume represents the total number of third-party product orders
processed by JMB, Goldline, and PMPP during the period.
(9)
Average Order Value ("AOV") represents the average dollar value of third-party
product orders (excluding accumulation program orders) delivered to the customer
during the period.
41--------------------------------------------------------------------------------
Segment Results - Direct-to-Consumer
Revenues - Direct-to-Consumer
in thousands, except performance
metrics
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Revenues $ 2,134,512 100.000 % $ 874,308 100.000 % $ 1,260,204 144.1 %
Performance Metrics:
Gold ounces sold 609,000 257,000 352,000 137.0 %
Silver ounces sold 27,611,000 10,463,000 17,148,000 163.9 %
Number of new customers 230,400 84,300 146,100 173.3 %
Number of active
customers 623,700 167,700 456,000 271.9 %
Number of total
customers 2,013,000 1,782,600 230,400 12.9 %
DTC ticket volume from
new customers 178,086 84,300 93,786 111.3 %
DTC ticket volume from
existing customers 680,544 247,364 433,180 175.1 %
DTC total ticket volume 858,630 331,664 526,966 158.9 %
DTC average order value $ 2,520 $ 2,773 $ (253 ) (9.1 %)
Revenues for the year ended June 30, 2022 increased $1.260 billion , or 144.1%,
to $2.135 billion from $874.3 million in 2021. Excluding inter-segment sales
from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services
segment, revenues for the year ended June 30, 2022 increased $1.266 billion or
146.3% to $2.132 billion from $865.8 million in 2021. The increase in revenue
was primarily due to transactions generated by JMB, for which a full year of
activity is included in the current year compared to the prior year that only
included activity for the post acquisition period. For the year ended June 30,
2022 JMB's revenue increased $1.270 billion to $1.943 billion from $673.3
million , while revenue of Goldline and PMPP, in the aggregate, decreased by $9.8
million as compared to the prior year.
Gold ounces sold for the year ended June 30, 2022 increased 352,000 ounces, or
137.0%, to 609,000 ounces from 257,000 ounces in 2021. Silver ounces sold for
the year ended June 30, 2022 increased 17,148,000 ounces, or 163.9%, to
27,611,000 ounces from 10,463,000 ounces in 2021. The increase in the segment's
precious metals ounces sold was primarily due to JMB activity, which accounted
for 103.1% and 97.5% of total change in gold and silver ounces sold,
respectively, for the year ended June 30, 2022 (which included a full year of
activity) compared to 2021 (which included only activity for the post
acquisition period.). The gold ounces sold by Goldline and PMPP in the aggregate
decreased 17.7% compared to the prior year. The silver ounces sold by Goldline
and PMPP in the aggregate increased 28.4% compared to the prior year.
On average, the selling prices for gold increased by 8.5% and selling prices for
silver decreased by 8.9% during the year ended June 30, 2022 as compared to the
prior year.
The number of new customers for the year ended June 30, 2022 increased 146,100,
or 173.3% to 230,400 from 84,300 in 2021. The number of active customers for the
year ended June 30, 2022 increased 456,000, or 271.9% to 623,700 from 167,700 in
2021. The number of total customers as of June 30, 2022 increased 230,400, or
12.9% to 2,013,000 from 1,782,600 as of June 30, 2021 . The increases in the
customer-based metrics were primarily due to our acquisition of JMB in March
2021 .
For the year ended June 30, 2022 , the Direct-to-Consumer ticket volume related
to new customers increased by 93,786 tickets, or 111.3%, to 178,086 tickets from
84,300 tickets in 2021. For the year ended June 30, 2022 , Direct-to-Consumer
ticket volume related to pre-existing customers increased by 433,180 tickets, or
175.1%, to 680,544 tickets from 247,364 tickets in 2021. For the year ended June
30, 2022 , the Direct-to-Consumer ticket volume increased by 526,966 tickets, or
158.9%, to 858,630 tickets from 331,664 tickets in 2021. The increase in ticket
volume was primarily due to transactions generated by JMB, for which a full year
of activity is included in the current year compared to the prior year that only
included activity for the post acquisition period.
For the year ended June 30, 2022 , the Direct-to-Consumer average order value
decreased by $253 , or 9.1%, to $2,520 from $2,773 in 2021. For the year ended
June 30, 2022 , average order value of JMB, Goldline, and PMPP increased by 3.8%,
9.4%, and 5.3%, respectively, compared to 2021. For the year ended June 30,
2022 , JMB's average order value was $2,328 .
Gross Profit - Direct-to-Consumer
in thousands, except performance
metric
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Gross profit $ 147,672 6.918 % $ 71,385 8.165 % $ 76,287 106.9 %
42-------------------------------------------------------------------------------- Gross profit for the year endedJune 30, 2022 increased by$76.3 million , or 106.9%, to$147.7 million from$71.4 million in 2021. The increase in gross profit was mainly due to JMB's contribution, which accounted for$74.2 million or 97.2% of the increase. For the year endedJune 30, 2022 , the Direct-to-Consumer segment's profit margin percentage decreased by 124.7 basis points to 6.918% from 8.165% in 2021. Excluding the impact of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment, the Direct-to-Consumer segment's gross profit margin percentage decreased by 131.5 basis points to 6.911% from 8.226% in 2021. The decrease in the gross profit margin percentage was mainly driven by the addition of JMB which has lower Direct-to-Consumer margins than Goldline and PMPP, partially offset by improved gross profit percentages at Goldline and PMPP.
Selling, General and Administrative Expense - Direct-to-Consumer
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Selling, general and
administrative
expenses $ (34,152 ) (1.600 %) $ (12,830 ) (1.467 %) $ 21,322 166.2 %
Selling, general and administrative expenses for the year ended June 30, 2022
increased $21.3 million , or 166.2%, to $34.2 million from $12.8 million in 2021.
The change was primarily due to an increase in JMB's selling, general, and
administrative expenses of $21.6 million .
Depreciation and amortization expense - Direct-to-Consumer
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $ revenue (decrease) (decrease)
Depreciation and
amortization expense $ (26,057 ) (1.221 %) $ (9,561 ) (1.094 %) $ 16,496 172.5 %
Depreciation and amortization expense for the year ended
Interest expense - Direct-to-Consumer
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of Increase/ Increase/
$ revenue $
revenue (decrease) (decrease)
Interest expense
229.4 %
Interest expense for the year ended
43
--------------------------------------------------------------------------------Results of Operations - Secured Lending Segment
The Company operates its Secured Lending segment through its wholly-owned
subsidiaries,
Overview of Results of Operations for the Years Ended
- Secured Lending Segment
The operating results of our Secured Lending segment for the years ended
in thousands, except performance
metrics
Years Ended June 30, 2022 2021 $ %
% of % of
interest interest Increase/ Increase/
$ income $ income (decrease) (decrease)Interest income$ 11,094 100.000 %$ 8,159 100.000 %$ 2,935 36.0 % Interest expense (9,000 ) (81.125 %) (7,301 ) (89.484 %)$ 1,699 23.3 % Selling, general and administrative expenses (1,622 ) (14.621 %) (2,198 ) (26.940 %)$ (576 ) (26.2 %) Depreciation and amortization expense (352 ) (3.173 %) (351 ) (4.302 %) $ 1 0.3 % Earnings from equity method investments 4 0.036 % - (- %) $ 4 (- %) Other income, net 2,182 19.668 % 1,079 13.225 %$ 1,103 102.2 % Net income (loss) before provision for income taxes$ 2,306 20.786 %$ (612 ) (7.501 %)$ 2,918 476.8 % Performance Metric: Number of secured loans at period end(1) 2,271 1,881 390 20.7 % (1)
Number of outstanding secured loans to customers at the end of the period.
Interest Income - Secured Lending
in thousands, except performance
metric
Years Ended June 30, 2022 2021 $ %
% of % of
interest interest Increase/ Increase/
$ income $ income (decrease) (decrease)
Interest income $ 11,094 100.000 % $ 8,159 100.000 % $ 2,935 36.0 %
Performance Metric
Number of secured
loans at period-end 2,271 1,881 390 20.7 %
Interest income for the year ended June 30, 2022 increased $2.9 million , or
36.0%, to $11.1 million from $8.2 million in 2021. The increase in interest
income earned from the segment's secured loan portfolio was primarily due to
higher average monthly loan balances during the current year as compared to the
average monthly loan balances for the prior year. The number of secured loans
outstanding increased by 390 or 20.7% to 2,271 from 1,881 as of June 30, 2021 .
Interest Expense - Secured Lending
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of
interest interest Increase/ Increase/
$ income $ income (decrease) (decrease)Interest expense$ (9,000 ) (81.125 %)$ (7,301 ) (89.484 %)$ 1,699 23.3 % Interest expense for the year endedJune 30, 2022 increased$1.7 million , or 23.3% to$9.0 million from$7.3 million in 2021. The change in interest expense is driven by the value of our secured loan portfolio, which is primarily financed through the Notes and our Trading Credit Facility. As compared to the prior year, interest expense related to the Notes and our Trading Credit Facility increased$1.2 million and loan servicing costs increased$0.5 million . 44 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses - Secured Lending
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of
interest interest Increase/ Increase/
$ income $ income (decrease) (decrease)
Selling, general, and
administrative expenses $ (1,622 ) (14.621 %) $ (2,198 ) (26.940 %) $ (576 ) (26.2 %)
Selling, general, and administrative expenses for the year ended June 30, 2022
decreased $0.6 million , or 26.2%, to $1.6 million from $2.2 million in 2021. The
decrease was mainly driven by lower compensation expense.
Other Income, net - Secured Lending
in thousands
Years Ended June 30, 2022 2021 $ %
% of % of
interest interest Increase/ Increase/
$ income $
income (decrease) (decrease)
Other income, net
102.2 %
Other income, net for the year ended June 30, 2022 increased $1.1 million , or
102.2% to $2.2 million from $1.1 million in 2021. The increase was due to higher
royalty income earned.
NON-GAAP MEASURES
Adjusted net income before provision for income taxes
Overview
In addition to our results determined in accordance withU.S. GAAP, we believe the below non-GAAP measure is useful in evaluating our operating performance. We use the financial measure "adjusted net income before provision for income taxes" to present our pre-tax earnings from on-going business operations. This measure does not have standardized definitions and is not prepared in accordance withU.S. GAAP. The items excluded from this financial measure may have a material impact on our financial results. Certain of those items are non-recurring, while others are non-cash in nature. Accordingly, this non-GAAP financial measure should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance withU.S. GAAP. Reconciliation We calculate this non-GAAP performance measure by eliminating from net income before provision for income taxes the impact of items we do not consider indicative of our ongoing operations. We eliminate the impact of the following four items: (i) remeasurement gains or losses; (ii) acquisition expenses; (iii) amortization expenses related to intangible assets acquired; and (iv) depreciation expense. The following tables reconcile this non-GAAP financial measure to its most closely comparableU.S. GAAP measure on our financial statements for the years endedJune 30, 2022 and 2021.
Year Ended
in thousands Years Ended June 30, 2022 2021 $ % Net income before provision for income taxes$ 166,417 $ 192,801 $ (26,384 ) (13.7 %) Adjustments: Remeasurement gain on pre-existing equity interest - (26,306 )$ (26,306 ) (100.0 %) Acquisition costs 1,283 2,576$ (1,293 ) (50.2 %) Amortization of acquired intangibles 25,668 9,342$ 16,326 174.8 % Depreciation expense 1,632 1,447$ 185 12.8 % Adjusted net income before provision for income taxes (non-GAAP)$ 195,000 $ 179,860 $ 15,140 8.4 % Adjustments Remeasurement gains or losses. This adjustment relates to our acquisition inMarch 2021 of the 79.5% of the equity interest in JMB that was not previously owned by us. When we acquire control of a business for which we had previously owned a noncontrolling equity interest, we are required to estimate the fair value of our pre-existing equity investment and record the change in its value as a remeasurement gain or loss, which we present on the face of our consolidated statements of income. Remeasurement gains and losses 45 --------------------------------------------------------------------------------
are recorded upon the completion of an acquisition. We exclude these types of remeasurement gains and losses when we evaluate our on-going operational performance and to facilitate comparison of period-to-period operational performance.
Acquisition expenses. We incur expenses for professional services rendered in connection with business combinations, which are included as a component of selling, general, and administrative expenses in the Company's consolidated statements of income. Acquisition expenses are recorded in the periods in which the costs are incurred, and the services are received. We exclude acquisition expenses when we evaluate our on-going operational performance and to facilitate comparison of period-to-period operational performance. Amortization of purchased intangibles. Amortization expense of purchased intangibles varies in amount and frequency and is significantly impacted by the timing and size of our acquisitions. Management finds it useful to exclude these charges from our operating expenses to assist in the review of a measure that more closely corresponds to cash operating income generated from our business. Amortization of purchased intangible assets will recur in future periods. For additional information about the amortization of our purchased intangibles. (See
Note 9 to the Company's consolidated financial statements.)
Depreciation expense. Depreciation expense is calculated using a straight-line method based on the estimated useful lives of the related assets, ranging from three years to twenty-five years. Due to depreciation expense being non-cash in nature, management finds it useful to exclude these charges from our operating expenses to assist in the review of a measure that more closely corresponds to cash operating income generated from our business. (See Note 8 to the Company's consolidated financial statements.)
Earnings before interest, taxes, depreciation, and amortization
Overview
In addition to the performance non-GAAP measure discussed in the section above, we use the non-GAAP liquidity measure "earnings before interest, taxes, depreciation, and amortization" or "EBITDA" to evaluate our business operations unburdened by our capital structure, before investing activities, interest, and income taxes. Management and external users of our consolidated financial statements, such as industry analysts and investors, may use EBITDA to compare business operations with other publicly traded companies.
Reconciliation
We calculate EBITDA by eliminating from net income the following five items: (i)
interest income; (ii) interest expense; (iii) amortization expenses related to
intangible assets acquired; (iv) depreciation expense; and (v) income tax
expense.
Management believes the most directly comparable GAAP financial measure is "net
cash used in operating activities" presented in the consolidated statement of
cash flows. EBITDA is reconciled directly to "net cash used in operating
activities" below:
46
--------------------------------------------------------------------------------in thousands Years Ended June 30, 2022 2021 $ % Net income$ 133,079 $ 160,924 $ (27,845 ) (17.3 %) Adjustments: Interest income (21,800 ) (18,474 )$ 3,326 18.0 % Interest expense 21,992 19,865$ 2,127 10.7 % Amortization of acquired intangibles 25,668 9,342$ 16,326 174.8 % Depreciation expense 1,632 1,447$ 185 12.8 % Income tax expense 33,338 31,877$ 1,461 4.6 % 60,830 44,057$ 16,773 38.1 % Earnings before interest, taxes, depreciation, and amortization (EBITDA)$ 193,909 $ 204,981 $ (11,072 ) (5.4 %) Reconciliation of EBITDA to Operating Cash Flows: Earnings before interest, taxes, depreciation, and amortization (EBITDA)$ 193,909 $ 204,981 $ (11,072 ) (5.4 %) Amortization of loan cost 2,651 2,162$ 489 22.6 % Deferred income taxes (4,106 ) (2,034 )$ 2,072 101.9 % Interest added to principal of secured loans (14 ) (13 )$ 1 7.7 % Share-based compensation 2,140 1,173$ 967 82.4 % Write-down of digital assets 229 -$ 229 (- %) Remeasurement gain on pre-existing equity method investment - (26,306 )$ (26,306 ) (100.0 %) Earnings from equity method investments (6,907 ) (15,547 )$ (8,640 ) (55.6 %) Dividends received from equity method investees 1,678 343$ 1,335 389.2 % Income tax expense (33,338 ) (31,877 )$ 1,461 4.6 % Interest income 21,800 18,474$ 3,326 18.0 % Interest expense (21,992 ) (19,865 )$ 2,127 10.7 %
Changes in operating working capital (245,216 ) (184,145 ) $
61,071 33.2 % Net cash used in operating activities$ (89,166 ) $ (52,654 ) $ 36,512 69.3 % Cash Flow Data: Net cash used in operating activities$ (89,166 ) $ (52,654 ) $ 36,512 69.3 % Net cash used in investing activities$ (60,563 ) $ (130,393 ) $ (69,830 ) (53.6 %) Net cash provided by financing activities$ 86,107 $ 232,127 $ (146,020 ) (62.9 %)
LIQUIDITY AND FINANCIAL CONDITION
Primary Sources and Uses of Cash
Overview
Liquidity refers to the availability to the Company of amounts of cash to meet all of our cash needs. Our sources of liquidity principally include cash from operations, Trading Credit Facility (see "Lines of Credit" below), and product financing arrangements. A substantial portion of our assets are liquid. As ofJune 30, 2022 , approximately 81.2% of our assets consisted of cash, receivables, derivative assets, secured loans receivables, precious metals held under financing arrangements and inventories, measured at fair value. Cash generated from the sales or financing of our precious metals products is our primary source of operating liquidity. Among other things, these include our product financing arrangements and liabilities on borrowed metals. Typically, the Company acquires its inventory by: (i) purchasing inventory from its suppliers by utilizing our own capital and lines of credit; (ii) borrowing precious metals from its suppliers under short-term arrangements which may bear interest at a designated rate, and (iii) repurchasing inventory at an agreed-upon price based on the spot price on the specified repurchase date. In addition to selling inventory, the Company generates cash from earning interest income. The Company enters into secured loans and secured financing structures with its customers under which it charges interest. The loans are secured by precious metals and numismatic material owned by the borrowers and held by the Company as security for the term of the loan. The Company also offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products. Furthermore, our customers may enter into agreements whereby the customer agrees to repurchase our precious metals at the prevailing spot price for delivery of the product at a specific point in time in the future; interest income is earned from the contract date until the material is delivered and paid for in full. We may also raise funds through the public or private offering of equity or debt securities, although there is no assurance that we will be able to do so at the times and in the amounts required. We have an effective universal shelf registration statement, on file with 47 --------------------------------------------------------------------------------
the
We continually review our overall credit and capital needs to ensure that our capital base, both stockholders' equity and available credit facilities, can appropriately support our anticipated financing needs. The Company also continually monitors its current and forecasted cash requirements and draws upon and pays down its lines of credit so as to minimize interest expense. (See
Note 15 to the Company's consolidated financial statements.)
Lines of Credit
in thousands
June 30, 2022
June 30, June 30, Compared to
2022 2021 June 30, 2021
Lines of credit $ 215,000 $ 185,000 $ 30,000
Effective December 21, 2021 , A-Mark entered into a three-year committed
borrowing facility (the "Trading Credit Facility") with CIBC Bank USA , as agent
and joint lead arranger, and a syndicate of banks. As of June 30, 2022 , the
Trading Credit Facility provided the Company with access up to $350.0 million .
The credit facility has a termination date of December 21, 2024 .
A-Mark routinely uses funds drawn under the Trading Credit Facility to purchase
metals from its suppliers and for other operating cash flow purposes. Our CFC
subsidiary also uses the funds drawn under the Trading Credit Facility to
finance certain of its lending activities.
Notes Payable
in thousands
June 30, 2022
June 30, June 30, Compared to
2022 2021 June 30, 2021
Notes payable $ 94,073 $ 93,249 $ 824
In September 2018 , AM Capital Funding, LLC ("AMCF"), a wholly owned subsidiary
of CFC, completed an issuance of Secured Senior Term Notes, Series 2018-1, Class
A in the aggregate principal amount of $72.0 million and Secured Subordinated
Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0
million (collectively, the "Notes".) The Class A Notes bear interest at a rate
of 4.98% and the Class B Notes bear interest at a rate of 5.98%. The Notes have
a maturity date of December 15, 2023 .
As of June 30, 2022 , the consolidated aggregate carrying balance of the Notes
was $94.1 million (which excludes the $5.0 million portion of the Class B Notes
that the Company retained), and the remaining unamortized loan cost balance was
approximately $0.9 million , which is amortized using the effective interest
method through the maturity date. (See Note 15 to the Company's consolidated
financial statements.)
Liabilities on Borrowed Metals
in thousands
June 30, 2022
June 30, June 30, Compared to
2022 2021 June 30, 2021
Liabilities on borrowed metals
We borrow precious metals from our suppliers and customers under short-term
arrangements using other precious metal from our inventory or precious metals
held under financing arrangements as collateral. Amounts under these
arrangements require repayment either in the form of precious metals or cash.
Liabilities also arise from unallocated metal positions held by customers in our
inventory. Typically, these positions are due on demand, in a specified physical
form, based on the total ounces of metal held in the position.
48
--------------------------------------------------------------------------------Product Financing Arrangements
in thousands
June 30, 2022
June 30, June 30, Compared to
2022 2021 June 30, 2021
Product financing arrangements
The Company has agreements with financial institutions and other third parties
that allow the Company to transfer its gold and silver inventory to the third
party at an agreed-upon price based on the spot price, which provides
alternative sources of liquidity. During the term of the agreement both parties
intend for inventory to be returned at an agreed-upon price based on the spot
price on the termination (repurchase) date. The third parties charge monthly
interest as a percentage of the market value of the outstanding obligation; such
monthly charges are classified as interest expense. These transactions do not
qualify as sales and therefore are accounted for as financing arrangements and
reflected in the Company's consolidated balance sheets as product financing
arrangements. The obligation is stated at the amount required to repurchase the
outstanding inventory. Both the product financing arrangements and the
underlying inventory (which is entirely restricted) are carried at fair value,
with changes in fair value included as a component of cost of sales.
Secured Loans Receivable
in thousands
June 30, 2022
June 30, June 30, Compared to
2022 2021 June 30, 2021
Secured loans receivable $ 126,217 $ 112,968 $ 13,249 CFC is a
to
the Company's consolidated financial statements.) AMCF also purchases and holds secured loans from CFC to meet its collateral requirements related to the Notes. (See Note 15 to Company's consolidated financial statements.) Most of the Company's secured loans are short-term in nature. The renewal of these instruments is at the discretion of the Company and, as such, provides us with some flexibility in regard to our capital deployment strategies.
Dividends
OnAugust 30, 2021 , the Company's board of directors declared a non-recurring special dividend of$1.00 per common share (as adjusted for the two-for-one split of A-Mark's common stock in the form of a stock dividend in fiscal 2022) to stockholders of record at the close of business onSeptember 20, 2021 . The dividend was paid onSeptember 24, 2021 and totaled$22.6 million . OnApril 28, 2022 , the Company's board of directors declared a two-for-one split of A-Mark's common stock in the form of a stock dividend. Each stockholder of record at the close of business onMay 23, 2022 received a dividend of one additional share of common stock for every share held on the record date that was distributed after the close of trading onJune 6, 2022 . This was a non cash transaction. All share and per share amounts (except par value) have been retroactively adjusted to reflect the stock split in the form of a dividend for all periods presented. The Company recently announced that its board of directors has adopted a regular quarterly cash dividend policy of$0.20 per common share. The initial quarterly cash dividend under the policy will be paid onOctober 24, 2022 to stockholders of record as ofOctober 10, 2022 .
The Company has also announced its board of directors has declared a
non-recurring special cash dividend of
Cash Flows
The majority of the Company's trading activities involve two-day value trades
under which payment is received in advance of delivery or product is received in
advance of payment. The combination of sales volume, inventory turnover, and
precious metals price volatility can cause material changes in the sources of
cash used in or provided by operating activities on a daily basis. The Company
manages these variances through its liquidity forecasts and counterparty limits
by maintaining a liquidity reserve to meet the Company's cash needs. The Company
uses various short-term financial instruments to manage the cycle of our trading
activities from customer purchase order to cash collections and product
delivery, which can cause material changes in the amount of cash used in or
provided by financing activities on a daily basis.
49
--------------------------------------------------------------------------------
The following summarizes components of our consolidated statements of cash flows
for the years ended
in thousands
June 30, 2022
Compared to
Year Ended June 30, 2022 June 30, 2021 June 30, 2021
Net cash used in operating activities $ (89,166 ) $ (52,654 ) $ (36,512 )
Net cash used in investing activities $ (60,563 ) $ (130,393 ) $ 69,830
Net cash provided by financing activities $ 86,107 $ 232,127 $ (146,020 )
For the periods presented, our principal capital requirements have been to fund
(i) working capital and (ii) investing activity. Our working capital
requirements fluctuated with market conditions, the availability of precious
metals, and the volatility of precious metals commodity pricing. The primary
reason for the increase in net cash used by operating activities was due to
changes in working capital, partially offset by increased cash generated from
net income, adjusted for noncash items Net cash used in investing activities
decreased as a result of lower acquisition activity and loan originations. Net
cash used in financing activities increased as a result of a decrease in the use
of short-term debt financing, as well as the absence of proceeds from a public
offering of common stock, partially offset by increased borrowings from our
Trading Credit Facility.
Net cash used in operating activities
Operating activities used$89.2 million and$52.7 million in cash for the years endedJune 30, 2022 and 2021, respectively, representing a$36.5 million decrease in cash used compared to the year endedJune 30, 2021 . The increase in cash used was primarily driven by changes in the balances of inventories, deferred revenue and other advances, and derivative assets, partially offset by increased net income adjusted for noncash items and changes in working capital, which includes the balances of derivative liabilities, accounts payable, liabilities on borrowed metals, and precious metals held under financing arrangements.
Net cash used in investing activities
Investing activities used$60.6 million and$130.4 million in cash for the years endedJune 30, 2022 and 2021, respectively, representing a$69.8 million decrease in the use of cash compared to the year endedJune 30, 2021 . This period over period decrease in cash used was primarily due to lower investing cash outflows associated with acquisitions, in which the prior year activity included the Company's$61.4 million incremental acquisition of JMB, and lower cash flows of$39.9 million associated with the acquisition and origination of secured loans in the current period, partially offset by higher cash used for the purchases long-term investments of$26.9 million , and the current year purchase an option to acquire a long-term investment valued at$5.3 million .
Net cash provided by financing activities
Financing activities provided$86.1 million and$232.1 million in cash for the years endedJune 30, 2022 and 2021, respectively, representing a$146.0 million decrease in cash provided compared to the year endedJune 30, 2021 . This period over period decrease was primarily due to the change in cash used by product financing arrangements of$44.7 million , the absence of proceeds from a public offering of common stock of$75.3 million , and lower cash inflows of$20.0 million associated with borrowings under lines of credit.
Capital Resources
We believe that our current cash availability under the Trading Credit Facility, product financing arrangements, financing derived from borrowed metals and the cash we anticipate generating from operating activities will provide us with sufficient liquidity to satisfy our working capital needs, capital expenditures, investment requirements, and commitments through at least the next twelve months.
CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS
Counterparty Risk
We face counterparty risks in our Wholesale Sales and Ancillary Services segment. We manage these risks by setting credit and position risk limits with our trading counterparties, including gross position limits for counterparties engaged in sales and purchase transactions and inventory consignment transactions with us, as well as collateral limits for different types of sale and purchase transactions that counterparties may engage in from time to time.
Commodities Risk and Derivatives
We use a variety of strategies to manage our risk including fluctuations in
commodity prices for precious metals. Our inventory consists of, and our trading
activities involve, precious metals and precious metal products, for which
prices are linked to the corresponding precious metal commodity prices.
Inventory purchased or borrowed by us is subject to price changes. Inventory
borrowed
50
--------------------------------------------------------------------------------is a natural hedge, since changes in value of the metal held are offset by the obligation to return the metal to the supplier or deliver metals to the customer.
Open sale and purchase commitments in our trading activities are subject to
changes in value between the date the purchase or sale price is fixed (the trade
date) and the date the metal is received or delivered (the settlement date). We
seek to minimize the effect of price changes of the underlying commodity through
the use of forward and futures contracts. Our open sale and purchase commitments
generally settle within 2 business days, and for those commitments that do not
have stated settlement dates, we have the right to settle the positions upon
demand.
Our policy is to substantially hedge our inventory position, net of open sale
and purchase commitments that are subject to price risk. We regularly enter into
precious metals commodity forward and futures contracts with financial
institutions to hedge against this risk. We use futures contracts, which
typically settle within 30 days, for our shorter-term hedge positions, and
forward contracts, which may remain open for up to six months, for our
longer-term hedge positions. We have access to all of the precious metals
markets, allowing us to place hedges. We also maintain relationships with major
market makers in every major precious metals dealing center.
The Company enters into these derivative transactions solely for the purpose of
hedging our inventory holding risk, and not for speculative market purposes. Due
to the nature of our hedging strategy, we are not using hedge accounting as
defined under, Derivatives and Hedging Topic 815 of the Accounting Standards
Codification ("ASC 815".) Unrealized gains or losses resulting from our futures
and forward contracts are reported as cost of sales with the related amounts due
from or to counterparties reflected as derivative assets or liabilities. The
Company adjusts the derivatives to fair value on a daily basis until the
transactions are settled. When these contracts are net settled, the unrealized
gains and losses are reversed and the realized gains and losses for forward
contracts are recorded in revenue and cost of sales and the net realized gains
and losses for futures are recorded in cost of sales.
The Company's net gains (losses) on derivative instruments for the years ended
June 30, 2022 and 2021, totaled $47.8 million and $(125.6) million ,
respectively. These net gains and losses on derivative instruments were
substantially offset by the changes in fair market value of the underlying
precious metals inventory and open sale and purchase commitments, which is also
recorded in cost of sales in the consolidated statements of income.
The purpose of the Company's hedging policy is to substantially match the change
in the value of the derivative financial instrument to the change in the value
of the underlying hedged item. The following table summarizes the results of our
hedging activities, showing the precious metal commodity inventory position, net
of open sale and purchase commitments, which is subject to price risk, compared
to change in the value of the derivative instruments as of June 30, 2022 and
June 30, 2021 :
in thousands
June 30, June 30,
2022 2021
Inventories $ 741,018 $ 458,019
Precious metals held under financing arrangements 79,766 154,742
820,784 612,761
Less unhedgeable inventories: Commemorative coin inventory, held at lower of cost or net realizable value
(1,434 ) (406 )
Premium on metals position (27,059 ) (11,017 )
Precious metal value not hedged (28,493 ) (11,423 )
792,291 601,338
Commitments at market:
Open inventory purchase commitments 681,835 987,926
Open inventory sales commitments (497,949 ) (590,156 ) Margin sale commitments (26,984 ) (7,322 ) In-transit inventory no longer subject to market risk (13,164 ) (16,707 ) Unhedgeable premiums on open commitment positions 12,933
8,638
Borrowed precious metals (59,417 ) (91,866 ) Product financing arrangements (282,671 ) (201,028 ) Advances on industrial metals 768
287
(184,649 ) 89,772
Precious metal subject to price risk 607,642
691,110
Precious metal subject to derivative financial instruments: Precious metals forward contracts at market values 278,326
175,352
Precious metals futures contracts at market values 326,713
514,240
Total market value of derivative financial instruments 605,039
689,592
Net precious metals subject to commodity price risk
1,518
51-------------------------------------------------------------------------------- We are exposed to the risk of default of the counterparties to our derivative contracts. Significant judgment is applied by us when evaluating the fair value implications. We regularly review the creditworthiness of our major counterparties and monitor our exposure to concentrations. AtJune 30, 2022 , we believe our risk of counterparty default is mitigated based on our evaluation of the creditworthiness of our major counterparties, the strong financial condition of our counterparties, and the short-term duration of these arrangements.
Commitments and Contingencies
Refer to Note 16 to the Company's consolidated financial statements for information relating Company's commitments and contingencies.
OFF-BALANCE SHEET ARRANGEMENTS
As ofJune 30, 2022 andJune 30, 2021 , we had the following outstanding sale and purchase commitments and open forward and future contracts, which are normal and recurring, in nature: in thousands June 30, June 30, 2022 2021 Purchase commitments$ 681,835 $ 987,926 Sales commitments$ (497,949 ) $ (590,156 ) Margin sales commitments$ (26,984 ) $ (7,322 ) Open forward contracts$ 278,326 $ 175,352 Open futures contracts$ 326,713 $ 514,240
Foreign exchange forward contracts
The notional amounts of the commodity forward and futures contracts and the open sales and purchase orders, as shown in the table above, are not reflected at the notional amounts in the consolidated balance sheets. The Company records commodity forward and futures contracts at the fair value, which is the difference between the market price of the underlying metal or contract measured on the reporting date and the trade amount measured on the date the contract was transacted. The fair value of the open derivative contracts are shown as a component of derivative assets or derivative liabilities in the accompanying consolidated balance sheets. The Company enters into the derivative forward and future transactions solely for the purpose of hedging its inventory holding risk, and not for speculative market purposes. The Company's gains (losses) on derivative instruments are substantially offset by the changes in fair market value of the underlying precious metals inventory position, including our open sale and purchase commitments. The Company records the derivatives at the trade date, and any corresponding unrealized gains or losses are shown as a component of cost of sales in the consolidated statements of income. We adjust the carrying value of the derivatives to fair value on a daily basis until the transactions are physically settled. (See Note 12 to the Company's consolidated financial statements.) CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States ("U.S. GAAP"). In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time the Company's consolidated financial statements are prepared. On a regular basis, we review our accounting policies, assumptions, estimates and judgments to ensure that the Company's consolidated financial statements are presented fairly and in accordance withU.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could materially differ from our estimates. Our significant accounting policies are discussed in Note 2 to the Company's consolidated financial statements. We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors. Revenue Recognition The Company accounts for its metals and sales contracts using settlement date accounting. Pursuant to such accounting, the Company recognizes the sale or purchase of the metals at settlement date. During the period between the trade and settlement dates, the Company has entered into a forward contract that meets the definition of a derivative in accordance with the Derivatives and Hedging Topic 815 of the ASC. The Company records the derivative at the trade date with any corresponding unrealized gain (loss), shown as component of cost of sales in the consolidated statements of income. The Company adjusts the derivatives to fair value on a daily basis until the transactions are settled. When these contracts are settled, the unrealized gains and losses are reversed, and revenue is recognized 52 -------------------------------------------------------------------------------- for contracts that are physically settled. For contracts that are net settled, the realized gains and losses are recorded in cost of sales, with the exception of forward contracts, where their associated realized gains and losses are recorded in revenue and cost of sales, respectively. Also, the Company recognizes its storage, logistics, licensing, advertising revenue, and other services revenues in accordance with the FASB's release ASU 2014-09 Revenue From Contracts With Customers Topic 606 and subsequent related amendments ("ASC 606"), which follows five basic steps to determine whether revenue can be recognized: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Inventories
The Company's inventory, which primarily consists of bullion and bullion coins,
is acquired and initially recorded at cost and then marked to fair market value.
The fair market value of the bullion and bullion coins comprises two components:
(i) published market values attributable to the cost of the raw precious metal,
and (ii) the published market values attributable to the premium, which is
attributable to the incremental value of the product in its finished goods form.
The market value attributable solely to such premium is readily determinable by
reference to multiple reputable published sources. The precious metal component
of the inventory may be hedged through the use of precious metal commodity
positions, while the premium component of our inventory is not a commodity that
may be hedged.
The Company's inventory, except for certain lower of cost or net realizable
value basis products (as described below), is subsequently recorded at their
fair market values. The daily changes in the fair market value of our inventory
are offset by daily changes in the fair market value of hedging derivatives that
are taken with respect to our inventory positions; both the change in the fair
market value of the inventory and the change in the fair market value of these
derivative instruments are recorded in cost of sales in the consolidated
statements of income.
While the premium component included in inventory is marked-to-market, our
commemorative coin inventory, including its premium component, is held at the
lower of cost or net realizable value, because the value of commemorative coins
is influenced more by supply and demand determinants than on the underlying spot
price of the precious metal content of the commemorative coins. Unlike our
bullion coins, the value of commemorative coins is not subject to the same level
of volatility as bullion coins because our commemorative coins typically carry a
substantially higher premium over the spot metal price than bullion coins.
Additionally, neither the commemorative coin inventory nor the premium component
of our inventory is hedged.
Inventory includes amounts borrowed from suppliers and customers arising from
various arrangements including unallocated metal positions held by customers in
the Company's inventory, amounts due to suppliers for the use of consigned
inventory, metals held by suppliers as collateral on advanced pool metals, as
well as shortages in unallocated metal positions held by the Company in the
supplier's inventory. Unallocated or pool metal represents an unsegregated
inventory position that is due on demand, in a specified physical form, based on
the total ounces of metal held in the position. Amounts under these arrangements
require delivery either in the form of precious metals or cash. The Company
mitigates market risk of its physical inventory and open commitments through
commodity hedge transactions. (See Note 12 to the Company's consolidated
financial statements.)
The Company enters into product financing agreements for the transfer and
subsequent option or obligation to reacquire its gold and silver inventory at an
agreed-upon price based on the spot price with a third party finance company.
This inventory is restricted and is held at a custodial storage facility in
exchange for a financing fee, charged by the third party finance company. During
the term of the financing agreement, the third party company holds the inventory
as collateral, and both parties intend for the inventory to be returned to the
Company at an agreed-upon price based on the spot price on the termination
(repurchase) date. The third party charges a monthly fee as percentage of the
market value of the outstanding obligation; such monthly charge is classified as
interest expense. These transactions do not qualify as sales and have been
accounted for as financing arrangements in accordance with ASC 470-40 Product
Financing Arrangements, and are reflected in the Company's consolidated balance
sheets as product financing arrangements. The obligation is stated at the amount
required to repurchase the outstanding inventory. Both the product financing and
the underlying inventory (which is restricted) are carried at fair value, with
changes in fair value included in cost of sales in the Company's consolidated
statements of income.
The Company periodically loans metals to customers on a short-term consignment
basis. Such inventory is removed at the time the customer elects to price and
purchase the metals, and the Company records a corresponding sale and
receivable.
The Company enters into financing arrangements with certain customers under
which A-Mark purchases precious metals products that are subject to repurchase
by the customer at the fair value of the product on the repurchase date. The
Company or the counterparty may typically terminate any such arrangement with 14
days' notice. Upon termination the customer's rights to repurchase any remaining
inventory is forfeited.
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--------------------------------------------------------------------------------Business Combinations
We completed the acquisition of JMB during the third quarter of fiscal year 2021. The accounting for a business combination requires tangible and intangible assets acquired and liabilities assumed to be recorded at estimated fair value. We valued intangible assets at their estimated fair values at the acquisition date based upon assumptions related to the future cash flows and discount rates utilizing the then currently available information, and in some cases, valuation results from independent valuation specialists. The use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows derived from the asset and the expected period of time over which those cash flows will occur and to determine an appropriate discount rate. We make certain judgments and estimates when determining the fair value of assets acquired and liabilities assumed in a business combination. Those judgments and estimates also include determining the lives assigned to acquired intangibles, the resulting amortization period, what indicators will trigger an impairment, whether those indicators are other than temporary, what economic or competitive factors affect valuation, valuation methodology, and key assumptions including discount rates and cash flow estimates.
We evaluate goodwill and other indefinite-lived intangibles for impairment annually in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the Intangibles -Goodwill and Other Topic 350 of the ASC. Other finite-lived intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. We may first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. If, based on this qualitative assessment, we determine that goodwill is more likely than not to be impaired, a quantitative impairment test is performed. This step requires us to determine the fair value of the business and compare the calculated fair value of a reporting unit with its carrying amount, including goodwill. If through this quantitative analysis the Company determines the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not to be impaired. If the Company concludes that the fair value of the reporting unit is less than its carrying value, a goodwill impairment will be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. The Company also performs impairment reviews on its indefinite-lived intangible assets (i.e., trade names and trademarks). In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company is not required to perform any additional tests in assessing the asset for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine if the fair value of an indefinite-lived intangible asset is less than its carrying value. If through a quantitative analysis the Company determines the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is considered not to be impaired. If the Company concludes that the fair value of an indefinite-lived intangible asset is less than its carrying value, an impairment will be recognized for the amount by which the carrying amount exceeds the indefinite-lived intangible asset's fair value.
Income Taxes
As part of the process of preparing the Company's consolidated financial
statements, the Company is required to estimate its provision for income taxes
in each of the tax jurisdictions in which it conducts business, in accordance
with the Income Taxes Topic 740 of the ASC ("ASC 740"). The Company computes its
annual tax rate based on the statutory tax rates and tax planning opportunities
available to it in the various jurisdictions in which it earns income.
Significant judgment is required in determining the Company's annual tax rate
and in evaluating uncertainty in its tax positions. The Company has adopted the
provisions of ASC 740-10, which clarifies the accounting for uncertain tax
positions. ASC 740-10 requires that the Company recognizes the impact of a tax
position in the financial statements if the position is not more likely than not
to be sustained upon examination based on the technical merits of the position.
The Company recognizes interest and penalties related to certain uncertain tax
positions as a component of income tax expense and the accrued interest and
penalties are included in deferred and income taxes payable in the Company's
consolidated balance sheets. (See Note 13 to the Company's consolidated
financial statements for more information on the Company's accounting for income
taxes.)
Income taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. A valuation allowance is provided when
it is more likely than not that some portion or all of the net deferred tax
assets will not be realized. The factors used to assess the likelihood of
realization include the Company's forecast of the reversal of temporary
differences, future taxable income, and available tax planning strategies that
could be implemented to realize the net deferred tax assets. Failure to achieve
forecasted taxable income in applicable tax jurisdictions could affect the
ultimate realization of deferred tax assets and could result in an increase in
the
54
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Company's effective tax rate on future earnings. Based on our assessment, it
appears more likely than not that all of the net deferred tax assets will be
realized through future taxable income.
RECENT ACCOUNTING PRONOUNCEMENTS
For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial position or results of operations. (See Note 2 to the Company's consolidated financial statements.)
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